Monday, 26 May 2014

The Law of The Tendency For The Rate of Profit To Fall - Part 11

The Fall In The Value Of The Circulating Constant Capital (1)

The points made already demonstrate the contradictory nature of the process which lies behind the law of falling profits. That process relies upon the continual rise of the social productivity of labour, brought about by technological change. But, it has already been seen that this very same process requires that the mass of capital, including variable capital, and therefore, the mass of surplus value, also continually rises. In addition, this very same process means that although the mass of fixed capital declines as a proportion of the total output, and, therefore, as a proportion of the laid-out circulating constant capital, it rises as a proportion of the advanced capital. That is because, the rise in social productivity, it brings about, increases the rate of turnover, of the advanced capital. The circulating capital turns over much more quickly, whilst the fixed capital, because it has to be present continuously in its entirety, thereby occupies a larger place amongst the advanced capital.

It was demonstrated that, in fact, as the proportion of fixed capital within the advanced capital rises, this has the necessary effect not of causing the rate of profit to fall, but to rise, because of this associated rise in the rate of turnover of the circulating capital. That same process leads to a proportion of the advanced capital being freed, which can be used for additional accumulation, including the establishment of new lines of business, where the organic composition of capital, and rate of profit is very high. But, the same process of raising the social productivity of labour, also reduces the value of the fixed capital employed, which means that the value of the total advanced capital, thereby falls relatively too. Particularly, in periods of rapid technological change, when the process of rising social productivity would be greatest, this has an even more marked effect on reducing the value of this fixed capital, via the process of moral depreciation. But, in reducing the value of the fixed capital, this also has the effect of reducing the organic composition of capital, and thereby raising the rate of profit. The greater the proportion of fixed capital within the advanced capital, the more marked this effect must be, as was shown earlier.

But, this process of rising social productivity does not just reduce the value of the fixed capital, it continually reduces the value of all commodities, and therefore, of the commodities that make up the circulating capital. In the example, given above, for example, a new spinning machine was introduced, which spun nine times as much cotton. As a result, it reduced the amount of living labour required in the spinning process to one-ninth its previous level. By that process, the value of yarn is reduced significantly. But, yarn is not just a consumer product. It comprises the raw material of other producers, such as weavers, tailors and so on. By reducing its value, this process reduces the value of the circulating capital of these other capitals, thereby reducing the organic composition of their capital, and acting to raise their rate of profit.

This process is again contradictory. The very fact of the sharp rise in demand for cotton causes its price to rise. That means that the “value” (not really its value but its price) of the circulating capital, of the spinner rises, their organic composition of capital rises, and so their rate of profit falls. Moreover, the sharp rise in the price of cotton causes the price of the yarn to rise, as the cost of the cotton is passed on. But, the extent of this depends on a number of factors. The price of yarn will not rise, for example, if the reduction in the value of living labour is greater than the increased price of cotton.

Suppose we have:

c 1000 + v 1000 + s 1000 = £3000. It represents 3000 kilos of yarn, making the price of each kilo £1.

As a result of the introduction of a new machine across the industry the demand for cotton rises sharply sending its price up by 20%, but the machine means that the same amount of labour processes twice the amount of cotton. As a result only half the workers are employed, the amount of living labour embodied in the product is cut in half, thereby reducing the value of the final product. (NB. The example, here is designed to show this effect on the price of the end product, but for the reasons set out in Part 10, its clear why this absolute reduction in labour-power would not occur. Indeed, the increased demand for cotton causing the higher price is premised on more of the new machines being introduced than just replace the output of the old machines.)

c 1200 + v 500 + s 500 = 2200. Now the 3000 kilos have a price of £0.733 per kilo, despite the fact that there has been a 20% rise in the price of cotton.

Here, the total capital advanced by the spinner has fallen from £2000 to £1700, but their surplus value has fallen from £1,000 to £500. Their rate of profit has fallen from 50% to 29.41%. But, the price of yarn has fallen for the weaver, tailor and so on. As a result, the value of the latter's constant capital, will have fallen accordingly, their organic composition of capital will have fallen, and their rate of profit risen. If this situation were to continue, capital would move from spinning to weaving, tailoring etc. where the rate of profit is higher. Marx says,

“When spinning-machines were invented, there was over-production of yarn in relation to weaving. This disproportion disappeared when mechanical looms were introduced into weaving.” (TOSV2 Note p 521)

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